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When the locals don't want your coal, sell it overseas

 

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The Global West: how foreign investment fuels resource extraction in western states

The world's largest surface coal mine complex is a landscape unto itself. Six 200-foot-high draglines tear open the earth and scoop the black coal into gigantic dump trucks that make school buses look like playthings. Two dozen loaded-down trains, each a mile long, slide out of the mine complex every day, headed for power plants hundreds and even thousands of miles away. Big signs warn, "Blasting Area. Orange Cloud Possible. Avoid Contact." One gets the eerie sense that time has shifted forward to a dark, post-oil future, and, at the same moment, back to a more barbaric age.

This is Arch Coal's Black Thunder/Jacobs Mine complex in the Powder River Basin in eastern Wyoming, about 80 miles north of Douglas. It's one of about a dozen huge mines between Douglas and Gillette that together produce more than 40 percent of the nation's electricity-generating coal. These mines comprise what may be the world's largest single fossil fuel reserve. Wyoming's low-sulfur coal is shipped as far away as New Jersey, Georgia and Louisiana.

But with the future of the domestic coal market in doubt, there may be only one way to keep places like Black Thunder cranking at current levels: Get Western coal to the global market, a prospect that is already altering the battlefield over one of the world's dirtiest fuels.

Dozens of U.S. coal plants are nearing their 40-year-old retirement age, meaning they'll either have to be retrofitted with expensive pollution controls or shuttered. Already slated for shutdown are Boardman in Oregon, Centralia in Washington, 18 Tennessee Valley Authority plants and 6,000 megawatts of American Electric Power's plants. If the phase-out continues at this pace, it could cut U.S. coal consumption by well over 100 million tons per year, putting a dent in our 1 billion ton annual diet. And there's not much on the horizon to replace that market: Proposals for new power plants have run up against litigious warfare from environmentalists and a dearth of financing thanks to the potential for greenhouse gas emissions regulations or taxes.

As the locals get ready to go on a bit of a coal diet, however, the rest of the world appears to be eager to binge. High natural gas prices have prompted European utilities to buy more coal, some of it from here, driving U.S. exports from 60 million tons in 2009, to 82 million tons the following year. And those numbers could soon be dwarfed by demand from China.

China uses and produces more coal than any other country on the planet, and it's not in danger of running out any time soon. But getting coal out of the earth in China is a chaotic business. The mines are inefficient and isolated by railway bottlenecks. Coal truck convoys have reportedly caused traffic jams that take weeks to clear. China's mines killed more than 50,000 miners over the last decade, compared to less than 400 in the U.S. All these factors make Chinese coal very expensive, especially for the utilities on the coast.

So China has started shopping elsewhere, importing five times more coal this year than it did in 2008. "It just makes sense," says Mark Northam, director of the School of Energy Resources at the University of Wyoming. "You're starting to see the world buy its resources where it's cheapest." That includes Indonesia, Australia and Colombia, and also Wyoming,  which was able to enter the world coal market via a shipping terminal in British Columbia.

In order to open a bigger artery to Asia, Peabody Energy partnered last year with SSA Marine on a proposal to build a coal terminal near Bellingham, Wash. Arch Coal acquired an interest in a similar port at Longview, Wash., on the Columbia River downstream from Portland. And this spring, energy giant Kinder-Morgan announced it had penned a deal with an unnamed Colorado coal producer to ship China-bound coal out of its Houston port.

If these ports are built, along with the rail capacity to serve them, Western coal mines could help meet a possible 1 billion tons per year of new demand, the likely result if all the power plants currently on Asian drawing boards come to fruition. "I believe that we have to take the coal company proposals seriously," says Thomas Power, a University of Montana professor emeritus of economics, "because if their greatest Asian fantasies are realized, the cost the American West would pay would be very high indeed."

This March, Interior Secretary Ken Salazar traveled to Wyoming to announce that the BLM would auction thousands of acres of new coal leases in the Powder River Basin. This leasing had been in the pipeline for years, delayed in part due to environmentalists' efforts. Still, the correlation between the surprise announcement and the recent surge in exports is hard to ignore -- and environmentalists are not ignoring it.

A coalition has sued over the new federal leases, claiming that the Basin was wrongly declassified as a "coal-producing region" in the 1990s -- it remains that way today -- meaning that the leasing process is less competitive and subject to less public scrutiny. Others are wondering how 30 to 60 additional mile-long trains moving from Montana and Wyoming to the coast would impact towns, the landscape and the already beleaguered passenger train traffic.

But the real action is happening out on the Coast. When state and local opposition boiled up against the Longview port this winter, Montana Gov. Brian Schweitzer headed west. He voiced his support for the terminal at a public meeting, and had a sit-down session with Washington Gov. Christine Gregoire. Schweitzer, a Democrat who has ardently sought to expand Montana's coal industry and whose administration recently leased a large tract of land to Arch Coal, argued that it was unfair for Washington to restrict Montana's markets. His efforts were for naught. After internal documents were leaked showing that proponents actually wanted to build a much bigger terminal than they had applied for, state regulators got involved and the proponents withdrew their application. (That doesn't mean it's over; they say they plan to reapply, and Arch is reportedly looking for alternate terminal sites in Oregon.)

The Bellingham battle grows more heated every day. After initially being neutral on the issue, the city's mayor recently came out against the terminal, opening a major rift with the county commissioners and local chamber of commerce, which support the terminal because of the jobs it would bring. Local opponents worry about the impacts to fish, as well as all the extra train traffic and coal dust -- BNSF railway studies have found that a single coal car can lose up to a ton of coal on a single trip. This spring, activists, including author Bill McKibben, brought national attention to the fight.

Still, some say that the greens are acting too locally -- ignoring the global picture. Richard Morse, the director of research on coal and carbon markets at Stanford's Program on Energy and Sustainable Development, argues that the more coal China gets from the U.S. and elsewhere, the better it will be for the environment in the long term. His reasoning? When China buys coal from the U.S. or Australia or any other foreign source, it drives the global and domestic price up. And that, in turn, motivates other coal-burning nations to switch away from coal to natural gas (or wind or solar) to generate power. Since natural gas burns cleaner than coal, there will be a net decrease in global greenhouse gas emissions.

China, says Morse, will burn the same amount of coal no matter where it comes from; it imports coal not because it needs to, but because it costs less than mining its own. And the country currently lacks the capacity to shift easily to natural gas. Meanwhile, by burning low-sulfur Powder River Basin coal instead of its own dirtier stuff, China will have cleaner air in its coastal cities. "The more expensive China makes global coal supplies, the more competitive cleaner energy becomes in the developed world and the lower will be CO2 emissions," says Morse. "In a world without a price on carbon, we can only hope that China takes all of the rest of the world's coal it can get."

Thomas Power, the Montana economist, believes Morse's argument is upside-down. The Powder River Basin is mined on such a gargantuan scale -- it would only take one and a half Black Thunder mines to supply all of China's 2010 imports --  and in such an efficient way, he says, that it could increase supply in the global market enough to bring prices down. Meanwhile, China is leading an effort, and Peabody's vying to help out, to up coal production in Mongolia. That could add to the world supply and depress prices, too. Coal would persist as the cheapest fuel of all, and would continue to be burned in spades.

No matter how it all plays out, the U.S. battle between coal companies and environmentalists is now becoming a world war, with surprising consequences. Just two weeks before Salazar opened up more of Wyoming to the draglines, environmentalists watched triumphantly as the 40-story smokestack of the Mojave coal-burning power plant in Laughlin, Nev., crashed to the earth. With China beckoning, they shouldn't expect the same thing to happen to the massive machinery at the Black Thunder mine anytime soon.